European Stocks Decline on Bailout Delay; UBS, Fortis Retreat

By Adria Cimino

Sept. 26 (Bloomberg) -- European stocks sank for a fourth day this week after negotiations on the $700 billion financial bailout plan stalled and Washington Mutual Inc. was seized in the biggest U.S. bank failure in history.

UBS AG, the European bank hardest hit by subprime-related losses, slid 3.4 percent and Dexia SA, the world's largest lender to local governments, lost 5.5 percent after Republicans said they wouldn't support the proposed rescue plan. Fortis tumbled 12 percent. Vestas Wind Systems A/S retreated 11 percent after Morgan Stanley cut its recommendation for the biggest wind- turbine producer.

The Dow Jones Stoxx 600 Index decreased 1.9 percent to 265.99 at 2:37 p.m. in London, extending the drop this week to 4.4 percent. The measure is down 27 percent in 2008 as more than $520 billion in writedowns and credit losses at banks worldwide pushed the global economy toward a recession.

``With the bankruptcy of Washington Mutual, the systemic risk has returned,'' said Benoit de Broissia, an equity analyst at Richelieu Finance in Paris, which oversees about $6.2 billion. ``One of the links in the chain has broken so we wonder if the chain is threatened,'' he said in a Bloomberg Television interview.

National benchmark indexes dropped in all 18 western European markets. The U.K.'s FTSE 100 fell 1.9 percent as shares of Old Mutual Plc declined. A retreat in oil prices weighed on energy producers including Total SA, helping push France's CAC 40 down 1.7 percent. Germany's DAX slipped 1.7 percent.

House Republicans

A group of House Republicans led by Eric Cantor of Virginia said they wouldn't support a plan based on the approach outlined by Treasury Secretary Henry Paulson and backed by President George W. Bush and Democratic leaders. The discord sent Paulson back into a late-night meeting on Capitol Hill with lawmakers. Lawmakers are set to meet again this morning.

``There's a lot of hesitation on the plan,'' said Pierre- Yves Gauthier, a founding partner at Alphavalue in Paris. ``This stalling is creating more worries. Politics have taken over.''

Marc Faber, managing director of Marc Faber Ltd. in Hong Kong, said the U.S. government's rescue package for the financial system may require as much as $5 trillion, seven times the amount Paulson has requested.

JPMorgan Chase & Co. bought WaMu's branch network for $1.9 billion after the thrift was seized by regulators. WaMu is the latest casualty of a financial crisis that drove Lehman Brothers Holdings Inc. and IndyMac Bancorp out of business and led to the hastily arranged rescues of Merrill Lynch & Co. and Bear Stearns Cos., which was itself absorbed by JPMorgan.

Growth Forecast

U.S. treasuries advanced today, with two-year notes heading for a fifth week of gains. European government bonds rose, with yields on two-year notes poised for the biggest weekly decline in eight months.

The worsening financial crisis will cause the U.S. economy to contract, JPMorgan said after cutting its growth forecast for the current quarter. The economy will stagnate in the three months through the end of September, the bank's economists wrote in a note, revising an earlier prediction of 0.5 percent growth.

A government report today showed the U.S. economy expanded at an annual rate of 2.8 percent in the second quarter, slower than the estimated 3.3 percent.

UBS shares retreated 3.4 percent to 20.38 Swiss francs. Dexia slid 5.5 percent to 10.29 euros.

Money-market rates rose worldwide after talks on the rescue plan stalled, deepening concern financial institutions will hoard cash and curb lending. The euro interbank offered rate, or Euribor, for three-month bank loans jumped today to the highest level since the debut of the euro in 1999.

Fortis, Vestas

Fortis, Belgium's biggest financial-services firm by assets, sank 12 percent to 5.71 euros as De Telegraaf reported clients of Dutch unit ABN Amro Holding NV may be moving to other banks. The cost of protecting Fortis bonds from default surged to a record.

Chief Executive Officer Herman Verwilst, speaking at a press briefing in Brussels today, said he's ``flabbergasted'' by the decline in the company's stock.

Bradford & Bingley Plc, the U.K.'s largest lender to landlords, plummeted 13 percent to 18.5 pence on concern it won't be able to raise money in capital markets.

Vestas Wind dropped 11 percent to 520 kroner. The company had its recommendation cut to ``underweight'' from ``equal- weight'' at Morgan Stanley, which said the stock looks ``unjustifiably expensive.''

The brokerage also cited ``early signs of softening demand among small developers'' and an increase in raw-material prices.

Rheinmetall AG retreated 4.5 percent, to 40.30 euros after Merrill lowered its recommendation for the supplier of weapons for the U.S. Army's Abrams tank to ``neutral'' from ``buy.''

Insurers, Oil Shares

Insurance stocks will remain ``vulnerable to swings in both the credit and equity markets,'' Merrill wrote in a separate report, downgrading Aviva Plc to ``neutral'' from ``buy.'' The U.K.'s biggest insurer by premiums fell 3.4 percent to 521.5 pence.

ING Groep NV and Old Mutual were lowered to ``underperform'' from ``neutral'' by the bank. ING shares lost 4.6 percent to 17.99 euros, while Old Mutual sank 4.7 percent to 83.7 pence.

Total, Europe's third-biggest oil company, declined 1.5 percent to 43.77 euros. BP Plc, Europe's second-largest oil producer, lost 1.2 percent to 492 pence. Crude oil dropped as much as 3.5 percent to $104.25 in electronic trading on the New York Mercantile Exchange.

SBM Offshore NV slumped 7.7 percent to 15.67 euros after Goldman Sachs Group Inc. downgraded the world's biggest producer of floating oil production platforms to ``sell'' from ``neutral'' and added the stock to its ``conviction sell'' list.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.